Business Leaders See Risks in Unchecked Political Spending

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Updated at 2:28 p.m. on December 13.

Reform advocates railing against undisclosed corporate campaign spending may have an unlikely new ally in the never-ending political money wars: Business leaders themselves.

A small but growing chorus of corporate executives, business analysts, and investors is calling for better disclosure and oversight of corporate campaign spending. The flood of often-undisclosed corporate money unleashed by a landmark Supreme Court ruling this year poses a threat to companies’ reputations, they warn, as well as to their bottom lines.

The backlash has caused headaches for the U.S. Chamber of Commerce, which has riled some local chambers by opposing climate regulations and by pouring a record $75 million into the last midterm elections.

“I think there are real counter-pressures developing,” said Bruce Freed, president of the Center for Political Accountability, a nonprofit that advocates better corporate governance. Business leaders are increasingly sensitive to the risks that their campaign expenditures pose, said Freed. The uproar over Target Corp.’s indirect backing for a Minnesota gubernatorial candidate opposed to gay rights was a wakeup call, he added: “Companies are recognizing that we really need to protect ourselves.”

Last month the Conference Board, a leading business research organization, issued a 52-page "Handbook on Corporate Political Activity" warning that companies face heightened risks in the wake of the Supreme Court’s Citizens United v. Federal Election Commission ruling. Trade association membership gives companies a valuable advocacy tool, but it can also pose “reputational or bottom-line” risks, the handbook warns.

The handbook also includes a "model code of conduct" authored by the Center for Political Accountability. It calls on corporate leaders to post political expenditures on their websites; disclose trade association dues; and clear campaign spending decisions with their boards, among other steps.

“Regardless of whether a company chooses to disclose or not disclose, there needs to be a firm, robust internal control and governance process to ensure that political contributions and political activity are done in the best interests of shareholders,” said Paul DeNicola, associate director of the Conference Board’s Governance Center and Directors’ Institute.

Also ringing alarm bells is the Committee for Economic Development, a business-led public policy nonprofit, which has advised business leaders to stay out of politics altogether. Corporate money controversies are converging dangerously with a resurgent shareholder-rights movement and with renewed corporate scrutiny in the wake of the financial crisis, cautioned CED President Charles E.M. Kolb.

“We’ve tried to signal to corporate America that it would be a huge mistake to get dragged into this mess right now,” said Kolb, who served as a White House domestic policy adviser under President George H.W. Bush.

In a Zogby International poll of more than 300 business leaders commissioned by the CED, fully 77 percent said that they “strongly” or “somewhat” support disclosure of the political money corporations spend, both directly and indirectly through third-party groups that run campaign ads. Two-thirds supported the statement that “the lack of transparency and oversight in corporate political activity encourages behavior that puts corporations at legal risk and endangers corporate reputations.”

Caught in the crossfire is the U.S. Chamber, whose pro-GOP spending and advertising blitz was underwritten in part by seven-figure corporate contributions. A trio of Massachusetts investors last month filed shareholder resolutions at some half-dozen corporations that sit on the chamber’s board, urging them to take a more active role on what they called the trade group’s “passive and compliant” board.

Shareholders object to the chamber’s aggressive and partisan midterm spending, its recent lobbying push to challenge or stall recently-enacted financial reforms, and to its policy positions on issues such as climate change, said Timothy Smith, senior vice president at Boston-based Walden Asset Management, one of three investor groups that issued the challenge. Shareholders have also approached close to two dozen companies that do not serve on the chamber’s board, Smith said.

“If they’re on the board, they have to act like board members and be consistent with their companies’ own positions,” said Smith. Four companies left the chamber, and one stepped down from the trade group’s board last year over the climate-change issue. A handful of others have publicly stated that the chamber does not represent their viewpoints on climate change.

Chamber officials denied recent reports that dozens of local chambers have distanced themselves from the group’s midterm political activities. At least one New Hampshire affiliate, the Greater Hudson Chamber of Commerce, did split from the national group; but another, the Greater Philadelphia Chamber of Commerce, recently denied reports that it would be leaving the U.S. Chamber. If anything, local chambers enthusiastically embraced the trade group’s midterm push, said Tita Freeman, the Chamber's vice president of communications.

“We saw more support for the U.S. Chamber and engagement in this election cycle than ever before,” she said. Freeman added that the chamber “fully supports” the Conference Board’s corporate governance proposals, but acknowledged: “Our members will never agree with us 100 percent of the time on the breadth of issues we handle.”

Still, secretive political spending by the chamber and other groups sits poorly with many business leaders, including some Republicans. In this midterm, big corporate players funneled tens of millions into mostly Republican-friendly 501(c)4 nonprofits and trade associations, including the chamber, that face no disclosure requirements. Corporate leaders who think that their donations will not be disclosed eventually “are wrong,” said Kolb. “It will come out.”

More importantly, he said, secret spending flies in the face of standard American business practice. “One of the most important things to having a successful marketplace is transparency, disclosure, and, of course, the rule of law,” including what’s known as the sanctity of contract, Kolb said. “That is where I think conservatives really ought to be in favor of campaign finance reform.”

E-mail Eliza Newlin Carney at ecarney@nationaljournal.com.

Follow her on Twitter at http://twitter.com/elizarules.